» Boeing up?

Although he has been on Boeing's board since 1997, Harry Stonecipher thought he had retired from the executive suite for good when stepped down in June 2002. "I was spending all my time in Florida playing golf," recalls Stonecipher, who had been the airplane maker's chief operating officer for almost five years after Boeing bought McDonnell Douglas, where he had been CEO.

So how will Stonecipher guide Boeing through tougher commercial competition, an anticpated slowdown in defense spending and continued scrutiny of corporate practices? Wall $treet Week with FORTUNE spoke to Stonecipher this week to find out, and a brief excerpt of his conversation with Geoff Colvin will appear on our April 23, 2004 broadcast. As for the rest of Stonecipher's words, here they are:

On becoming Boeing's CEO:

Actually it was in a board meeting. I had stayed on the board at Boeing. And so as the situation came up where there was going to be a replacement, Mr. Condit decided to resign. And they looked around, and I guess because of the situation, you know, I’ve been through this sort of thing a couple of times before. So experiences that I’m not happy that I have, but I do have them, so I decided to come and try to do it.

On relying more heavily on defense:

It’s a result of a strategy that was really started by Phil Condit, who said we need some balance in the company. You can’t have 80 percent of your revenues and income -- and sometimes 80 percent of the revenues and 100 percent of the income -- come (like commercial passenger jets) from a situation that’s very cyclical and follows an economic cycle. And so putting balance in that says maybe you ought to have some products that maybe follow another cycle, like a geopolitical cycle. And defense makes a good marriage; the technologies make a good marriage. So I don’t know that we’re focusing anymore on it. It’s just the fact that we wanted balance, and it’s proven to be exactly what we wanted.

On growth in defense spending:

It’s either plateaued or plateauing as we speak, but it’s plateaued at a pretty high level. And so certainly defense will weaken. Hopefully, we’re all in favor of peace, hopefully that we will find peace or a more peaceful, stable situation, and it will. But we’ve got a pretty broad-based position there, and it’s not just defense. It’s intelligence, it’s homeland security.

On prospects for the commercial passenger jet market:

But we expect we’re right at the bottom of the commercial cycle, and traffic’s picking up. And so as this comes back, there’s about, we think about 500 airplanes out of the some 2,000 that are parked will come back into the capacity, and after that there will be some significant buying, and there’s some buying starting right now.

On the economics of operating passenger jets:

The airlines look at it and say, 'Well, we’ve got the crew cost. Maybe if we put two more rows of seats in or three more rows.' So suddenly what you thought was a120-passenger airplane becomes 140 or 150.

But we’ve picked a position and we’re building three different models of the 7E7, and it’s the middle of the market. Both of us talk a lot about our big airplanes, 4-7s, triple 7s, A380s, A340s, but fundamentally we sell more 737s than any airplane. Airbus sells more A320 and derivatives than any airplane. So that’s where the market is. The 737 has gotten longer, more efficient, and you know we’ve sold a lot of those airplanes, well over 3,000.

On what makes a difference among airlines:

I don’t think we do, and I think it’s like every industry -- your industry, our industry, the airline industry -- low-cost providers are going to make a difference. And you can look at almost any industry you want to. Quality and service and price are three big issues, and depending on who the customer is showing up, those switch every once in a while. And some people are interested in quality and service at any price, and there are certain products that are that way.

In air traffic today people are really calling up, and they want to go across the country for $169, and they’re going to do it. You have a lot of very good carriers providing good, reliable service. And you’re seeing the Southwests and the JetBlues and the AirTrans and the ATAs of the world that are providing great service, quality air travel at a low cost. That’s going to threaten the heck out of the big integrated full service carriers. And so trying to find out where that is, it’s market acceptance. What do the people want?

On what jet interiors might look like:

In fact, from time to time, we’ve talked about why do we need windows at all? Now when we really get crazy we do that, because we can give you a hologram, you know, you can do anything you want today.

There will always be the issue of how many seats are in the airplane. We and Airbus get blamed for a lot of that, but in fact, the airlines decide. In many cases they buy their own seats and we install them, or in some cases they install them. They decide how much room you’re going to get. They’re selling real estate, and they do it efficiently. So we still get blamed for it. That’s okay. They’re our customers.

On gains in Boeing's stock price over the past 12 months:

Well, it’s not as good as we think it will be, and it will get a lot better.

It’s called performance. And when people say, "What are you going to do differently, Harry?" the thing to do differently is, number one, clean up the reputation issue, restore the pride and respect for the employees. This is not just about customers. This is about the 155,000 people in Boeing who feel kind of put upon by all the events of last year. Restore that, and then (have) flawless execution.

So I think you’ll see that bringing some more returns, and it’s all about earnings. It’s all about understanding the future. It’s not having the big mistakes and the big write offs that we had last year. So that’s what we’re trying to do.

On how long he'll stay as CEO:

I’ve answered that question several times, and I said I came here to do a job. The board can decide whenever they want that they have someone else they’d like to put in the job, and I’d be happy as long as my health is good, and it’s very good right now. And I enjoy what I do.

I’ve been working, I started work on March 29, 1955, for a division of General Motors on the T-56 engine for the C-130 aircraft. And both of those are still in production today, derivatives of them. So it was a long time ago, but I’ve enjoyed every job I’ve had and I enjoy the one I have now. So somebody will throw me out or (if) I’ll fail to perform, then they’ll throw me out. But don’t plan on doing that.

On corporate governance:

We obviously had some slips. All of the policies and procedures were in place, but we didn’t have a watchdog system or an audit system that made sure that we were following all those.

And so we’ve put in place, reporting directly to me, an office of corporate governance, and it’s headed by Bonnie Soodik, and so that’s at the most senior level. And we’ve put our internal audit, our ombudsmen, as we call them, or ethics advisors, all of those come under her tutelage. So that’s one of the things that we’ve done.

The other thing that we’ve done is, we’ve raised the visibility of what we call compliance with our code of conduct. Most recently we had every employee in the Boeing company read and certify that they understood and will comply with the Boeing code of conduct. So we go through a lot of saying we have a value system that’s described, and as a minimum that’s what we want your value system to be. And so I was very pleased that out of all the people we have, we only had three people who wouldn’t sign, and one of them came back and signed a couple of hours later. And it wasn’t about an issue of ethics. It was about principle, you know, you can’t make me sign these things, you’re questioning, and that wasn’t it at all. The whole idea is let’s get a common baseline so we can all count on each other.

By the way, the whole issue of governance, and I think being sure that you’re complying with policies, that’s one thing. A lot of what you read today and see on television is about what we call corporate governance or corporate fraud and what have you, corporations don’t do this -- people do it. So we have to be sure that we don’t beat up on the people except as deserved. You have to be very crisp and clear that we don’t want it.

You can’t measure them, and also sometimes you’re too successful, and when things are too successful people get too relaxed. Vigilance wavers a little bit, (because) gosh, everybody’s doing a great job, let’s applaud that issue, and suddenly you say – wham! "Where did that come from?" So we all have to guard against it every day.

On his pay:

They pay me darn well, all right? They pay me darn well -- not as much as some of the numbers that you read, but it’s a matter of public record. I make less than my predecessor did by a little bit, not much.

But as I described it when I took the job, they had to put me on the payroll, so they put me on at $1 a year. And so, you know, that’s a beginning. But I’m a big investor in this company and I love the company. I love the people. So if they wanted to pay me $1 a year, that would have been fine, too.